Holiday Pay Entitlement
by on September 16, 2022
A recent case in the Supreme Court (Harpur Trust v Brazel) has clarified whether a worker’s right to paid annual leave is accumulated according to the working pattern of the worker, or is pro rata.
Here, we look at the case and examine the issues it raises for both employers and workers.
The facts of the case are as follows:
Ms Brazel (the Respondent) was a music teacher at a girls’ school in Bedford, which is run by the Harpur Trust (the Appellant). The Trust accepted that Ms Brazel was a ‘worker’ under the Working Time Regulations 1998 (WTR) which entitled her to 5.6 weeks of paid leave each year. Ms Brazel worked a variable number of hours every week on a permanent contract, and was only paid for the hours that she taught in term-time. Because she took her annual leave during the school summer holidays, in reality there were significantly more than 5.6 weeks every year during which she did not work at all.
Prior to September 2011, the holiday pay that Ms Brazel received for the 5.6 weeks she was entitled to was calculated in accordance with Section 224 of the Employment Rights Act 1996 which meant that her average week’s pay was multiplied by 5.6 – the ‘Calendar Week Method’.
However, in 2011, Harpur Trust changed the way in which it calculated her holiday pay to the ‘Percentage Method’. This meant that the hours she worked were multiplied by 12.07% (the proportion of Ms Brazel’s 5.6 weeks’ annual leave compared to the total weeks worked in a year, [46.4]) and this figure was then multiplied by her hourly rate of pay. The Trust based this calculation on how many hours Ms Brazel had worked in the preceding 12 weeks, meaning that Ms Brazel received significantly less holiday pay than previously.
Ms Brazel sought legal advice and brought a claim to an Employment Tribunal for underpayment of her holiday pay through unlawful deductions from her salary. The original Tribunal dismissed her claim, but allowed an appeal on the grounds that employment law requires the use of the ‘Calendar Week Method’. In the most recent instalment of this case, Ms Brazel’s argument was upheld and Harpur Trust’s appeal was dismissed by the Supreme Court in July 2022. The judgement stated that because Ms Brazel was a ‘part-year worker’ her holiday pay should not be prorated, and that the Trust’s actions were not legal in the UK.
What implications does this have?
Harpur Trust v Brazel could have wide-ranging implications for both employers and workers.
For employers: sectors such as agriculture, education, tourism and hospitality, where employees are engaged on irregular or short-term contracts, sometimes with gaps between assignments, generally use the 12.07% holiday pay calculator method.
The appeal’s verdict confirmed that employees are entitled to 5.6 weeks’ holiday pay, whether they are full or part-time workers, without prorating. In the case of workers without ‘normal’ working hours, it was also confirmed that their pay should be calculated according to the hours they work over a 52-week average, rather than by the hours they have worked.
Employers will now have to re-evaluate what they pay their workers who are engaged on irregular hours and have gaps between assignments, and who currently use the 12.07% method, as well as potentially reviewing their contracts and how they calculate holiday pay entitlement.
They may also face backdated claims for underpayment and unlawful deductions from wages, which could go back as far as two years.
For employees: almost every working person in the UK is entitled to paid holiday leave, and the Government has an online holiday pay calculator so that the correct amount of leave can be determined.
However, issues can arise when employees are engaged in atypical contracts such as people on zero-hours contracts, who work in term-time only, or are classed as part-year workers.
Harpur Trust’s argument was that a) holiday pay should be prorated (based on EU law and the WTR), and b) it was unreasonable for someone who worked part time to have a greater percentage of holiday entitlement than a full time worker. However, the Supreme Court rejected its arguments and the previously-widespread practice of paying 12.07% of holiday pay per hour worked, suggesting that the ‘Calendar Week Method’ might beneficially impact someone whose hours were irregular throughout the year, and that this wasn’t unreasonable.
Employees may find themselves faced with new, permanent contracts which may impact on how much paid leave they are entitled to, and potentially increase the number of hours they are required to work.
What can you do?
If you’re an employer, you may need to re-evaluate whether your irregular hours workers should be given fixed-term contracts for specific assignments, with holiday pay on termination of the contract. You might opt for employing workers on a lower, fixed-rate salary throughout the contract of employment (including when they’re not working) to make sure that you meet holiday entitlement and pay liabilities. Or, you may choose to engage your irregular hours workers as self-employed contractors, possibly through an umbrella company, to ensure that your holiday pay liability risk is lowered.
If you’re an employee on a permanent contract but with irregular hours, you need to ensure that your holiday pay calculations are accurate. You should also seek clarification of what ‘permanent’ means in your contract. In addition, you may choose to seek advice as to whether you have been underpaid (unauthorised deductions from your wages).
Get in touch
Harpur Trust v Brazel is just one example of the fast-changing and increasingly-complex pace of employment legislation, and whether you’re an employer keen to do right by the people who work for you, or an employee anxious to make the most of the terms of your employment contract, payme can help.
Contact us here for advice and information.